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The Impossibility Of Fiscal Responsibility

Yesterday's Senate vote, in which all forty Republican Senators rejected pay as you go financing, illustrates a couple impediments to reducing the long-term deficit. The first is that it's very hard for one party to reduce the deficit by itself. I wouldn't say that the entire Democratic Party is committed to serious deficit reduction. But major elements are, and nearly the whole party is committed to at least not making the problem worse. But a unilateral commitment to fiscal responsibility is a huge political handicap. Democrats made a push to reduce the deficit in 1993 with zero GOP support, and paid a price for it in 1994. A major reason President Obama has had such a hard slog enacting health care reform is that he has to come up with offsets for every new dollar he spends, and those offsets -- reductions in Medicare, capping the tax deduction for expensive health insurance plans -- are politically unpopular. Meanwhile, George W. Bush had a much easier time enacting his agenda because he simply decided to finance the entire thing with borrowing and got his party to go along.

The second problem is that, even if Democrats could reduce the deficit on their own and somehow could be insulated from the political harm, they have no incentive to do it. Why should they, when the Republicans don't share the goal? I strongly supported the Clinton administration's push to save the budget surplus in the late 1990s rather than spend it. In retrospect, that was a mistake. It just made it easier for Republicans to pass big, budget-wrecking tax cuts when they took office. There's no set of fiscal circumstances under which Republicans would not enact large tax cuts if given the votes to do so.

When you combine these two dynamics, the effect is truly toxic. The more Democrats do to reduce the deficit, the easier they make it politically for Republicans to retake power, and the easier they make it fiscally for Republicans to wreck the budget when they do. So, why try?

The biggest change in American politics over the past three decades is that the Republican Party has embraced, with the fervor of religion, the conviction that that tax rates need only be high enough to fund their desired level of government spending, rather than the actual level of spending. (How this came to be is the subject of my book.) There really no solution to the problem of American fiscal policy until the GOP can reform itself.